You own a contract that promises an annuity cash flow of $100 end-of-the-year cash flows for each of the next three years (note: the first cash flow is exactly one year from today).At an interest rate of 10%,what is the future value of this contract exactly three years from today?
A)$248.69
B)$273.55
C)$331.00
D)$364.10

Question

Quizplus · Accepted Answer

To calculate the future value of the annuity cash flows, we can use the formula:

FV = C[(1 + r)^n - 1]/r

Where:
C = Cash flow per period ($100)
r = Interest rate (10% or 0.1)
n = Number of periods (3)

Plugging in the values, we get:

FV = 100[(1 + 0.1)^3 - 1]/0.1
FV = $331.00

Therefore, the future value of this contract exactly three years from today is $331.00. The correct answer is C.

You Own a Contract That Promises an Annuity Cash Flow